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David Schollenberger, a partner at Healys and the head of its Gaming and Leisure division, has critically analyzed and compared the contemporary regulatory landscape for fantasy sports in both the US and the UK. He strongly advocates for the US to follow the UK's regulatory model, which is administered by a seasoned gaming authority.

Online fantasy sports competitions for real money, provided by companies like DraftKings and FanDuel, have gained significant traction in the US and are gradually being introduced in the UK.

In online fantasy sports, participants pay an entry fee to draft a team of players and accumulate points based on these players' actual performances in real-world games.

Given that online betting on real-life sports events is largely prohibited in the US, with a few exceptions for horse racing, and online casino games are only legal in three states, online fantasy sports has practically become the dominant player in the market, boasting millions of active users in the US. Fantasy baseball and fantasy football stand out as the two most popular fantasy sports in the U.S., where the majority of fantasy sports activity takes place.

There's been a surge in advertising for fantasy sports services on American television, sparking extensive debate and differing opinions about how it should be classified and regulated.

The approach to regulation varies from state to state. Presently, fantasy sports businesses are under investigation by state regulators and legislators, facing inquiries from the US Congress, a prohibition in Nevada, and numerous lawsuits.

So, how are fantasy sports currently regulated under federal and state laws in the US and the UK? What's the optimal path for their regulation? This article will delve into these queries.

Unlawful Internet Gambling Enforcement Act 2006 (UIGEA)

The Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) in the US granted a specific exemption to fantasy sports from the general prohibition on online sports betting.

This Act forbade gambling businesses from knowingly accepting payments related to a bet or wager involving the internet that is illegal under any federal or state law. However, it provided an exception for fantasy sports, given that certain criteria were satisfied.

The criteria permitting online fantasy sports contests include:

• All rewards and prizes to be given to the winners are established and disclosed to the participants before the game or contest begins, and their value isn't dependent on the number of participants or the amount they pay.
• All winning results demonstrate the relative knowledge and skill of the participants and are primarily determined by the accumulated statistical results of the performance of individuals (in the case of sports events, athletes) in multiple real-world sporting events.
• No winnings are reliant on the score, point spread, or any performance or performances of any single real-world team or any combination of such teams or solely on any single performance of an individual athlete in any single real-world sports betting or other event.

It's noteworthy that this exception was made at a time when fantasy sports contests were season-long, before the introduction of the daily model.

State-Level Regulation

In the United States, state laws dictate the definition and regulation of gambling. Many states categorize fantasy sports as a "game of skill" instead of a "game of chance," thus exempting it from gambling legislation.

Specific laws legalizing fantasy sports have been passed in Maryland and Kansas. Conversely, several states including Arizona, Iowa, Louisiana, Montana, Nevada, and Washington state have instituted laws that ban fantasy sports.

As of now, fantasy sports providers are offering their services in all states except those where it is explicitly prohibited. However, public pressure and state gambling regulators may alter this situation in the future.

States such as New Jersey, New York, and Michigan are reassessing whether or not fantasy sports should be classified as gaming and therefore fall under the jurisdiction of the state casino gaming regulator.

A proposed bill by New Jersey Senator Jim Whelan would mandate fantasy sports betting operators to procure licensing akin to online poker licensing, pay a "permit fee" to operate within the state, and house its servers within Atlantic City.

The demand for stricter regulation has intensified following the recent revelation that a DraftKings employee inadvertently leaked non-public contest information and had previously won $350,000 on a bet at competitor site FanDuel, potentially using inside information.

The Legal Standpoint In The UK

In the United Kingdom, the legal situation is more straightforward and defined. According to UK law, fantasy sports betting activities are classified as gambling and fall under the jurisdiction of the Gambling Act 2005, with regulation by the Gambling Commission. More specifically, it's considered pool betting.

Before fantasy sports betting operators can provide their services or advertise to the public in the UK, they must secure a pool betting operating license and a gambling software license. They must also comply with the Gambling Act 2005, its rules, and the relevant sections of the Licensing Conditions and Code of Practice, as well as pay gaming duty.

DraftKings has already acquired a license from the UK Gambling Commission, while FanDuel has applied for both a pool betting operating license and a gambling software license. Both firms are poised to actively penetrate the UK market.

The Next Steps In The US

At present, there is a lack of consumer protection regulations for fantasy sports in the US. There aren't any rules regarding age restrictions, identity and anti-money laundering checks, player fund safety, loss limits, fraud safeguards or applicable gaming tax.

The software algorithms utilized in these platforms are not subject to any fairness review or approval. Moreover, there are currently no limitations on when and how fantasy sports ads can be broadcast on US television.

There have been complaints about deceptive TV advertising featuring individuals winning large sums of money. Legal actions have been initiated claiming that the promise of initial player bonuses is misleading.

Congressional hearings on the industry have been requested by Representative Franck Pallone, asserting that the operators are exploiting the system.

Opponents of regulation maintain that fantasy sports are harmless family entertainment with relatively low stakes and losses compared to traditional sports gambling.

They argue that it adds to the excitement and enjoyment of watching sports and following various teams. They further contend that it's a skill-based game, with success depending on knowledge of the sport, athletes, and match schedules.

It's also argued that imposing casino-style regulations could potentially eliminate fantasy gaming due to the high costs of compliance and taxation. Many industry insiders believe that self-regulation or enhanced consumer protection laws, as seen with social gaming, would be a better alternative to comprehensive casino-style regulations.

These consumer protections could include age verification, safeguarding player funds, user information, and contest details. FanDuel's CEO, Nigel Eccles, supports "strong, common sense, enforceable consumer protection requirements," stating that it would benefit the industry and create a level playing field.

Conclusion

The inevitability of increased oversight on fantasy sports betting by US states is not only likely but also advisable. It's more logical to regulate an activity enjoyed by millions rather than prohibit it outright.

Self-regulation and consumer protection laws are inadequate for an activity that closely resembles gambling and share many associated societal concerns.

Seeing the regulation of fantasy sports betting as a stepping stone towards legalizing and regulating wider online sports betting in the US can be beneficial.

Regulatory bodies in relevant jurisdictions have vast experience in ensuring transparency, fairness, crime prevention, protection of player and contest data, player funds, safeguarding underage and vulnerable users, addressing addiction issues, regulating advertising, and auditing operations.

The argument that such regulations would result in prohibitive compliance and tax costs, rendering these businesses unviable, has been disproven by the success of online sports betting businesses in regulated jurisdictions like the UK and EU.

The regulatory model of the UK for fantasy sports could serve as a reliable blueprint for US states considering regulation.

The optimal outcome for the public, players, and operators alike would be to ensure that the games are safe, fair, transparent, and supervised by an experienced regulator, thus establishing a level playing field.